Sensex Opens Flat; Tata Motors Rally

Asian stocks are lower today as Japanese and Hong Kong shares fall. The Nikkei 225 is off 0.09% while the Hang Seng is down 0.08%. The Shanghai Composite is trading up by 0.72%. Overnight US stocks closed with gains as investors looked forward to earnings season.

Back home, India share markets opened the day on a flat note. The BSE Sensex is trading higher by 35 points while the NSE Nifty is trading higher by 9 points. The BSE Mid Cap index and BSE Small Cap index both opened the day up by 0.4% & 0.5% respectively.

Sectoral indices have opened the day on a mixed note with automobile stocks and realty stocks witnessing buying interest. While capital goods stocks and bank stocks have opened the day in the red. The rupee is trading at 65.02 to the US$.

Tata Motors share price surged 4% in the opening trade after it sold 187,321 units in the April 2017-March 2018 period, growing at a rate of 22%. Tata Motors has become the fourth-largest passenger vehicle (PV) maker by dethroning Honda Cars Indian in the FY18.

In the news from the pharma sector. As per an article in a leading financial daily, Sun Pharma has received USFDA approval for Methadone Hydrochloride tablet.

Reportedly, Methadone HCL is marketed under the brand Methadose by Specgx LLC. The approval has come for 10mg and 5mg formulations and it is used to treat the pain and opioid addiction.

Notably, Aurobindo Pharma is also selling this generic (approx. 18% market share) while Mallinckrodt is the largest player in this drug with approx. 50% market share. Mallinckrodt, however has been losing its market share, the reports noted.Methadone HCL market for 5mg and 10mg in 2017 was about US$75million. The market is mostly favouring generics and there are already 9-10 generics in this product.

Sun Pharma's entry should further reduce the market share of Mallinckrodt.

Meanwhile, Lupin has announced that its Goa facility has cleared the UK MHRA audit without any critical or major observation.

This comes a day after Lupin's Pithampur unit II completed the Health Canada audit successfully.

USFDA had issued a warning letter in November 2017 at the same Goa unit. Lupin has now reported two successful audits by two different global drug regulators within two days.

So, is this the right time to buy pharma stocks?

There is enormous uncertainty in the industry. Uncertainty regarding price erosion in the United States as well as hostile US FDA visits, have changed a once defensive sector into a risky sector.

BSE Healthcare Index Down 26% in Three Years

However, we believe this could be the point of consolidation in the industry i.e. with stricter norms, lower margins, and pricing pressure, the industry may see many exits and acquisitions. This could lead to relatively fewer but higher quality players.

We believe, if you can pick a niche company with good financials and strong management, this is a good time to consider pharma stocks.

Sun Pharma share price & Lupin share price opened the day up by 0.8% & 0.4% respectively.

Moving on to the news from the IPO space. Shares of India's biggest stockbroking firm ICICI Securities are scheduled to get listed on BSE and NSE today.

The initial public offering was opened for subscription between 22 March and 26 March. The company had fixed a price band of Rs 519-520 per share.

ICICI Securities had reduced the size of its IPO to little over Rs 35 billion after the share sale received a sluggish response, especially from high networth individuals.

The share sale of the leading brokerage firm -- which was to raise up to Rs 40.2 billion -- received around 88% subscription, including the anchor portion.

One shall note that for the first time in almost 3 years a firm will debut on the exchanges after getting less than 80% subscription.

Meanwhile, shares of Mishra Dhatu Nigam (MIDHANI) will also list on BSE and NSE today.

The IPO, which was oversubscribed by 1.21 times, was opened for subscription from 21 March to 23 March. The company had fixed the price band of Rs 87-90 for the public offer.

Speaking of IPOs, the demand for IPO's has reached sky-high levels. Avenue Supermart was seen as the first company last year to cross the 100-time subscription mark swiftly followed by CDSL and Dixon Technologies, among others.

This euphoria is something similar to what was seen in 2007-08. When everyone around you is clamoring to get a piece of the IPO pie, it makes sitting tight difficult. And, why should you sit tight when stocks like Avenue Supermart lets you pocket a cool 100% gain from day 1 of the listing?

History suggests that these cases are few and far between. More than 70% of the IPOs listed in 2007 and 2008 are in the red, even today when the Sensex is at an all-time high.

A merit-based selection primarily including valuation, business, and management quality is the logical way to go about investing in IPOs. If it means going against the herd, so be it. And going by recent past, this strategy has been proven to be successful more often than not.